Trade example:
Consider your economics textbook:
How much did you pay for it?
Answer ____say,
$40.00______________
Are there substitutes for it?
Answer ____not really___
How much will
you value this textbook, say, one minute after the final examination?
Answer _____I never
want to see it again! However, the bookstore will pay $15.00 for it.
_____________
Now let us imagine John, a student registered for
the same economics course next quarter.
(Assume that John has not yet purchased a textbook.) What value might John place on your textbook
one minute after your final exam?
Answer ______say,
$30.00__________
Let’s review our data:
Your value of the
textbook after the final exam ____$15.00 (bookstore repurchase
price)___
John’s value after the
final exam ______$30.00 (bookstore used
book price)______________
You and John value the same object, the textbook,
differently.
Potential gains from trade:
Your offer
to sell _____$25.00_______________
John’s
bid to buy _____$20.00________________
You
both settle at a price of ____$22.50_________
Are you better off?
Is John better off?
Analysis:
Both you and John enjoyed “gains from trade.”